If you noticed the word Salinas popping up in the national news about a week and a half ago, you undoubtedly noticed it was more bad news for the nation’s lettuce capital. An outfit called 24/7 Wall Street – a New York-based content farm that writes financial news and opinion pieces for sites like MarketWatch and the list-crazy Yahoo!Finance – wrote a piece with the bombastic title “The 10 Housing Markets That Will Collapse This Year.” And no. 8 on that list is Salinas. 


Based on a cursory look at just the Salinas blurb, it might be easy to say the 24/7 folks don’t know what they’re talking about. For example, last time I checked, Salinas was not 25 miles south of San Jose, and (unless Castroville has disappeared and nobody noticed), it most definitely is not a seaside resort with palm trees and beachfront high-rise hotels, as the picture with the Salinas nugget suggests.


But 24/7 based its story on data from the Fiserv Case-Shiller Indexes. Despite a newsletter publishing relationship with the increasingly suspect Standard & Poor’s, Case-Shiller has a pretty stellar reputation: It was founded by a couple of egghead Ivy League economists and forms its index by analyzing data on single-family properties that have two or more recorded sales transactions. They don’t care about the additional bedroom that may have been added, and they don’t care if zoning changed from residential to mixed use. They just care about the prices.


“PEOPLE WILL SAY, ‘THIS ONLY AFFECTS SALINAS,’ AND THAT’S NOT TRUE.”


By their estimate, home prices in the country are expected to stabilize by the end of 2012, driven by a fall off in mortgage delinquency rates and a decline in foreclosures. Prices are returning to pre-bubble and all of this, combined with a forecast that predicts economic growth, points to what Case-Shiller describes as a broad-based recovery that will begin in early 2012.


Except in Salinas, where prices are expected to drop by 11.8 percent by the second quarter of next year. Since 2006, median home values have dropped by more than 61 percent; more than 40 percent of that drop happened in 2009.


“Our local professional real estate organizations are by and large Peninsula-centric, and they would like to see that data as extremely localized, and they probably even have some numbers to back it up. They are seeing movement with higher-end properties,” says Leila Emadin, executive director of the Housing Resource Agency. The Salinas-based nonprofit offers a variety of programs, including rental assistance, security deposit guarantee and foreclosure intervention. 


Emadin says that by April of this year, 32 percent of Monterey County homeowners had received default notices, 35 to 40 percent of sales in the county are short sales, and 25 to 30 percent are REOs, or bank-owned foreclosures. 


Meanwhile, the final wave of those adjustable-rate mortgages that helped get people into their homes – and for many, into trouble as well – is due to reset in September and October. More and more, the people who come to the Housing Resource Center seeking foreclosure assistance are those who bought their homes in the past two years, post-bubble. 


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“There’s this huge dichotomy. A lot of people will look and say ‘This only affects Salinas,’ and that’s not true,” says Emadin, a former Sony Computer Entertainment exec.


And here’s why this next perfect storm of real estate ugliness is not just a Salinas problem. Starting Sept. 30, the upper limit for a conventional loan, currently set at $729,750 by the FHA, Fannie Mae and Freddie Mac, is going to drop to $625,500. In Monterey County, the limit is going to drop to $483,000 – that translates to 8.8 percent of loans that will become ineligible for FHA, Fannie or Freddie backing. It’s also the single largest drop in limits for any county in the state.


Anything above the $483,000 limit is going to be considered a non-conforming or jumbo loan, which typically carries a higher interest rate and require a higher down payment, increasing the monthly payment and negatively impacting housing affordability.


Between the Salinas price drop and the conforming loan drop, expect to see more foreclosures and more Monterey County buyers unable to get a home loan at all. That means we also can expect to see those homes in our neighborhoods that already are foreclosed and empty to remain that way.


“We see housing as the basis for community stability. If someone doesn’t have stable housing, they can’t be concerned about jobs and education. Food and shelter become priorities,” Emadin says. “We’re looking at the potential for the whole community to become destabilized, and that’s a huge concern. It impacts the whole county.” 


MARY DUAN is the Weekly’s editor. Reach her at mary@mcweekly.com.